Which action can create a valid security interest?

Which action can create a valid security interest?

• A. A written agreement that does not describe collateral
• B. A verbal agreement without any signature
• C. A signed or electronically marked agreement indicating intent
• D. A non-binding letter of intent

Answer: (C)

Creating a valid security interest requires a clear intention to create a security interest, backed by an agreement that meets specific legal requirements. A signed or electronically marked agreement that indicates the intent to create a security interest is considered valid because it typically fulfills the necessary conditions under the Uniform Commercial Code (UCC), which governs secured transactions. For a security interest to be enforceable, the parties involved must demonstrate their intention to enter into a secured transaction, which this type of agreement clearly does. Additionally, such agreements usually include elements like a description of the collateral, which is required for perfection and enforceability. The other options do not meet the standards required for creating a valid security interest. A written agreement without collateral description may lead to ambiguities regarding what is being secured. Verbal agreements typically do not provide the necessary documentation to establish or enforce a security interest. Finally, a non-binding letter of intent lacks commitment and does not constitute a contractual agreement, making it insufficient to create a valid security interest. Thus, only a signed or electronically marked agreement indicating intent fulfills the legal framework necessary for a valid security interest.

Creating a valid security interest requires a clear intention to create a security interest, backed by an agreement that meets specific legal requirements. A signed or electronically marked agreement that indicates the intent to create a security interest is considered valid because it typically fulfills the necessary conditions under the Uniform Commercial Code (UCC), which governs secured transactions.

For a security interest to be enforceable, the parties involved must demonstrate their intention to enter into a secured transaction, which this type of agreement clearly does. Additionally, such agreements usually include elements like a description of the collateral, which is required for perfection and enforceability.

The other options do not meet the standards required for creating a valid security interest. A written agreement without collateral description may lead to ambiguities regarding what is being secured. Verbal agreements typically do not provide the necessary documentation to establish or enforce a security interest. Finally, a non-binding letter of intent lacks commitment and does not constitute a contractual agreement, making it insufficient to create a valid security interest. Thus, only a signed or electronically marked agreement indicating intent fulfills the legal framework necessary for a valid security interest.